Chapter XVIII – Foreign Corporations maintaining any kind of action in RP courts.

H: The object of the statute was to subject the foreign corporation doing
Definition, status businesss in the Philippines to the jurisdiction of its courts. Its object was
not to prevent the foreign corporation from performing single acts, but to
— Sec 123: a foreign corporation is one formed, organized, or existing prevent it from acquiring a domicile for the purpose of business without
under any laws other than those of the Phils and whose laws allow taking the steps necessary to render it amenable to suit in the local
Filipino citizens and corporations to do business in its own country or courts. The effect of the statute preventing foreign corporations from
state doing business and bringing action in the courts except on compliance
with elaborate requirements must not be unduly extended or improperly
applied.
Not doing business no need for license
to sue and be sued Thus confronted with the option of construing the law to mean that any
Doing business need license corporation in the US, which might ant to sell to a person in the Phils
must sent some representative here before the sale and go through the
Jack: doing business is extending the business of the foreign entity to the RP, complicated formulae provided by the corporation law with regard to
on a continuing and permanent basis, in order to make profits! That’s all it obtaining of the license, before the sale was made in order to avoid being
is! swindled by Filipinos, there can be no other construction. The law simply
means that no foreign corporation shall be permitted to transact business
Call cases (except Merrill Lynch and TopWeld, are exceptions to doing in the Phils unless it shall have the license required by law, and until it
business! Compare with Agilent. Compare Wells and Mentholatum. complies with the law, shall not be permitted to maintain any suit in the
local courts.
Set aside cases of foreign corporation enforcing IPRs from the other cases
(Le Chemise, Gelhaar, Columbia, Puritan) The non-compliance of a foreign corporation with the requirements of the
statute may be pleaded as an affirmative defense. Thereafter it must
Methods of investment appear from the evidence, first—that the plaintiff is a foreign corporation,
and second—that it is doing business in the Phils, and third—that it has
Permitted areas of investment not obtained the proper license.

1. partially nationalized areas — To subject foreign corporations doing business in the RP to the
2. preferred areas; incentives for investment jurisdiction of the courts; and to prevent it from acquiring domicile
3. non-preferred areas of investment without taking steps to make it amenable to suits
— Requirement to obtain license applies only to foreign corporations
Legal Requirements prior to transaction of business doing business in RP

1. BOI Certificate
2. SEC license to do business
3. Certificate from appropriate government agency
Effect of failure to secure SEC license
Marshall Wells v Elser. F: Marshall Wells Co. (foreign) sued Henry Elser Co
(local) for the unpaid balance on the sale of goods. Elser Co files a demurrer,
contending that Marshall has no legal capacity to sue, not having complied
with the laws required of foreign corporations doing business in the RP and
not authorized to do business in RP. TC sustains demurrer.
I: W/n the obtaining of the license to do business is a condition precedent to
Marshall Wells + Metholatum = isolated txns NOT doing business
Columbia Pictures v CA. F: Columbia Pictures et al lodged a formal
complaint with the NBI for violation of PD No. 49, as amended, and
sought its assistance in their anti-film piracy drive. Agents of the NBI and
private researchers made discreet surveillance on various video
establishments in Metro Manila including Sunshine Home Video Inc. NBI
Senior Agent Lauro C. Reyes applied for a search warrant with the court a
quo against Sunshine seeking the seizure, among others, of pirated video
tapes of copyrighted films all of which were enumerated in a list attached
to the application; and, television sets, video cassettes and/or laser disc
recordings equipment and other machines and paraphernalia used or

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intended to be used in the unlawful exhibition, showing, reproduction, sale,
lease or disposition of videograms tapes in the premises above
described. TC granted and issued the SW. The search warrant was served to
Sunshine and/or their representatives. In the course of the search of the
premises indicated in the search warrant, the NBI Agents found and seized
various video tapes of duly copyrighted motion pictures/films owned or
exclusively distributed by private complainants, and machines, equipment,
television sets, paraphernalia, materials, accessories all of which were
included in the receipt for properties accomplished by the raiding
team. Sunshine filed a motion to lift warrant but was denied by the TC.
Sunshine contended that being foreign corporations, Columbia Pictures et al
should have such license to be able to maintain an action in Philippine
courts. In so challenging petitioners’ personality to sue, Sunshine pointed to
the fact that petitioners are the copyright owners or owners of exclusive
rights of distribution in the Philippines of copyrighted motion pictures or
films, and also to the appointment of Atty. Rico V. Domingo as their attorney-
in-fact, as being constitutive of “doing business in the Philippines” under BOI
Rules. As foreign corporations doing business in the Philippines, Section 133
of the Corporation Code denies them the right to maintain a suit in Philippine
courts in the absence of a license to do business, and thus have no right to
ask for the issuance of a search warrant. Upon MR, the TC granted the same,
holding that the master tapes of the copyrighted films from which the
pirated films were allegedly copies, were never presented in the proceedings
for the issuance of the search warrants in question. The orders of the Court
granting the search warrants and denying the urgent motion to lift order of
search warrants were, therefore, issued in error and was set aside.
Petitioners appealed.
H: The obtainment of a license prescribed by Section 125 of the Corporation
Code is not a condition precedent to the maintenance of any kind of action
in Philippine courts by a foreign corporation. However, under the
aforequoted provision, no foreign corporation shall be permitted to transact
business in the Philippines, as this phrase is understood under the
Corporation Code, unless it shall have the license required by law, and until
it complies with the law in transacting business here, it shall not be
permitted to maintain any suit in local courts. As thus interpreted, any
foreign corporation not doing business in the Philippines may maintain an
action in our courts upon any cause of action, provided that the subject
matter and the defendant are within the jurisdiction of the court. It is not
the absence of the prescribed license but “doing business” in the Philippines
without such license which debars the foreign corporation from access to our
courts. In other words, although a foreign corporation is without license to
transact business in the Philippines, it does not follow that it has no capacity
to bring an action. Such license is not necessary if it is not engaged in
business in the Philippines. it is recognized that a foreign corporation is
“doing,” “transacting,” “engaging in,” or “carrying on” business in the State
when, and ordinarily only when, it has entered the State by its agents and is
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there engaged in carrying on and transacting through them some
substantial part of its ordinary or customary business, usually continuous
in the sense that it may be distinguished from merely casual, sporadic, or
occasional transactions and isolated acts. Jurisprudence has, however,
held that the term implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance of acts
or works or the exercise of some of the functions normally incident to or
in progressive prosecution of the purpose and subject of its organization.
Based on Article 133 of the Corporation Code and gauged by such
statutory standards, petitioners are not barred from maintaining the
present action. There is no showing that, under our statutory or case law,
petitioners are doing, transacting, engaging in or carrying on business in
the Philippines as would require obtention of a license before they can
seek redress from our courts. No evidence has been offered to show that
petitioners have performed any of the enumerated acts or any other
specific act indicative of an intention to conduct or transact business in
the Philippines.
Accordingly, the certification issued by the SEC stating that its records do
not show the registration of petitioner film companies either as
corporations or partnerships or that they have been licensed to transact
business in the Philippines, while undeniably true, is of no consequence
to petitioners’ right to bring action in the Philippines. Verily, no record of
such registration by petitioners can be expected to be found for, as
aforestated, said foreign film corporations do not transact or do business
in the Philippines and, therefore, do not need to be licensed in order to
take recourse to our courts. As a general rule, a foreign corporation will
not be regarded as doing business in the State simply because it enters
into contracts with residents of the State, where such contracts are
consummated outside the State. In fact, a view is taken that a foreign
corporation is not doing business in the state merely because sales of its
product are made there or other business furthering its interests is
transacted there by an alleged agent, whether a corporation or a natural
person, where such activities are not under the direction and control of
the foreign corporation but are engaged in by the alleged agent as an
independent business.
In accordance with the rule that “doing business” imports only acts in
furtherance of the purposes for which a foreign corporation was
organized, it is held that the mere institution and prosecution or defense
of a suit, particularly if the transaction which is the basis of the suit took
place out of the State, do not amount to the doing of business in the
State. The institution of a suit or the removal thereof is neither the
making of a contract nor the doing of business within a constitutional
provision placing foreign corporations licensed to do business in the State
under the same regulations, limitations and liabilities with respect to such
acts as domestic corporations. Merely engaging in litigation has been
considered as not a sufficient minimum contact to warrant the exercise of
jurisdiction over a foreign corporation.
As to Sunshine’s contention that petitioners have no legal personality to sue,
among the grounds for a motion to dismiss under the Rules of Court are lack
of legal capacity to sue and that the complaint states no cause of action.
Lack of legal capacity to sue means that the plaintiff is not in the exercise of
his civil rights, or does not have the necessary qualification to appear in the
case, or does not have the character or representation he claims. On the
other hand, a case is dismissible for lack of personality to sue upon proof
that the plaintiff is not the real party-in-interest, hence grounded on failure
to state a cause of action. The term “lack of capacity to sue” should not be
confused with the term “lack of personality to sue.” While the former refers
to a plaintiff’s general disability to sue, such as on account of minority,
insanity, incompetence, lack of juridical personality or any other general
disqualifications of a party, the latter refers to the fact that the plaintiff is
not the real party- in-interest. Correspondingly, the first can be a ground for
a motion to dismiss based on the ground of lack of legal capacity to sue;
whereas the second can be used as a ground for a motion to dismiss based
on the fact that the complaint, on the face thereof, evidently states no cause
of action.
Applying the above discussion to the instant petition, the ground available
for barring recourse to our courts by an unlicensed foreign corporation doing
or transacting business in the Philippines should properly be “lack of
capacity to sue,” not “lack of personality to sue.” Certainly, a corporation
whose legal rights have been violated is undeniably such, if not the only,
real party-in-interest to bring suit thereon although, for failure to comply
with the licensing requirement, it is not capacitated to maintain any suit
before our courts.
— Columbia: ownership of copyright or distribution rights and enforcement
of IPR ≠ doing business
— Entering into contracts with residents in the RP ≠ doing business
General Garments Corp v Director of Patents. F: General Garments
Corp is the owner of the trademark “Puritan” for assorted men’s wear and
underwear. The Puritan Sportswear Corporation of Pennsylvania, filed a
petition for cancellation of the trademark registered in the name of General
Garments Corporation, alleging ownership and prior use of the name.
General Garments contends that Puritan being a foreign corporation which is
not licensed to do and is not doing business in the RP, is not considered a
person under RP laws and consequently not comprehended within the term
“any person” under the Trademark Law then in force. MTD was denied by the
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Director of Patents.
I: W/N Puritan Sportswear Corp, not licensed to do business and not doing
business in the RP, has legal capacity to maintain a suit in the Phil. Patent
Office.
H: The fact that it may not transact business in the Phils unless it obtains
a license or maintains a suit does not make the respondent any less a
juridical person. An exception to the license requirement is where a
foreign corporation sues on an isolated transaction. It cites the Marshall
Wells case (supra)
It should be pointed out that Puritan is not suing in the courts to recover
a debt claim or demand—which would require a license—but filed a
petition to cancel the trademark registered by General Garments. A
foreign corporation which has never done business in the Phils and which
is unlicensed and unregistered to do so, but is widely and favorable
known in the Phils through the use therein of its products bearing its
corporate name has a legal right to maintain an action. The purpose of
such a suit is to protect its reputation, corporate name, and goodwill,
which has been established through the natural development of its trade,
in the doing of which it does not seek to enforce any legal or contract
rights arising from, or growing out of any business transacted in the Phils.
The lawful entry into the Phils of goods bearing the trademark since 1949
should entitle the owner to the right to use the same to the exclusion of
others. The law is not only for the protection of the owner of the
trademark but also for the protection of purchasers from confusion or
deception.
General Garments invokes the Mentholatum ruling in support of his case,
but the SC held that Congress, in seeking to purposely counteract the
effects of the case, enacted RP 638 and inserted Sec 21-A in the
Trademark Law, to allow foreign corporations to bring an action in RP
courts for infringement of a mark or trade name, or unfair competition, or
false designation of origin and false description, whether or not it has
been licensed to do business in the RP.
Le Chemise Lacoste v Fernandez. F: La Chemise Lacoste is a French
corporation and not doing business in the RP, and is also the actual
owner of the trademarks Lacoste and Crocodile Device. Hemandas & Co
secured a registration of the trademarks in its name from the Phil Patent
Office of the trademarks owned by Le Chemise. Hemandas then assigned
all its rights title and interest in the trademark to Gobindram Hemandas.
Le Chemise filed its own application for registration of the trademarks
Crocodile Device and Lacoste, and the Patent Office approved the former
was but rejected the latter. Le Chemise then filed a letter-complaint with
the NBI alleging acts of unfair competition committed by Hemandas and
requesting their apprehension and prosecution. The NBI secured search
warrants, but Hemandas files a MTQ the warrant alleging that his
trademarks is different from Le Chemise. Search warrants were recalled and
items seized returned to Hemandas. Le Chemise questions the quashal.
I: W/n petitioner has no legal capacity to sue because it is not doing
business in the Philippines and is not licensed to do so, and that it failed to
allege certain facts in its petition relative to its capacity to sue.
H: In Leviton case, which is relied on by Hemandas, it was ruled that it is not
enough for a foreign corporation to merely allege that it is a foreign
corporation. Compliance with the requirements under the law or statute
from which it seeks relief and upon which the grounds of the illegal act are
alleged, is necessary. It is therefore necessary for the foreign corporation to
comply with these requirements or aver why it should be exempted from
them. The foreign corporation may have the right to sue before RP courts,
but our rules on pleadings require that the qualifying circumstances
necessary for the assertion of that right be affirmatively pleaded. Since the
present case involves a criminal offense, the Leviton case is inapplicable. Le
Chemise may still sue even if it failed to allege material facts. A foreign
corporation not doing business needs no license to sue before RP courts for
infringement of trademark and unfair competition. A foreign corporation
favorable known in the Phils through the use of its products bearing its
corporate name has a legal right to maintain action in the Philippines to
restrain the formation in BF of a corporation bearing the same name as the
foreign corporation; the sole purpose of its suit is to protect its reputation,
corporate name, goodwill whenever the same has established themselves. A
corporate and trade name are property rights, rights in rem, which the
owner may assert and protect against the whole world, in any courts of the
world—even in jurisdictions where it does not transact business. Since it is
the trademark and not the mark that is to be protected, a trademark
acknowledges no territorial boundaries or municipalities or states or nations,
but extends to every market where the trader’s goods have become known
and identified.
The letter-complaint that preceded the petition was filed with the NBI. If
prosecution would follow after the PI then the information shall be in the
name of the People of the RP and no longer the petitioner which is only an
aggrieved party, since a criminal act is an act against the State. Le Chemise
capacity to sue, would then be of no significance.
The Mentholatum case relied upon by Hemandas is also not on all fours with
the present case. The foreign corporation in Mentholatum is in fact doing
business in the RP but without the requisite license. In the present case, Le
Chemise is a foreign corporation not doing business in the RP. It has an
exclusive distributor, Rustans Commercial, which is an independent entity
which buys and sells the products of Le Chemise, and is in other words not a
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mere agent or conduit of Le Chemise. BOI rules also support a finding
that Le Chemise is not doing business. Rustans is a middleman acting
and transacting business in its own name and account.
In upholding the rights of Le Chemise, SC held that we are recognizing
our duties and rights of foreign states to which the Philippines and France
are parties. We are simply interpreting and enforcing a solemn
international commitment of the Philippines embodied in a multilateral
treaty, the Paris Convention for the Protection of Industrial Property to
which we are a party. The convention has extraterritorial application, and
is essentially a compact between the member countries to accord to
member-countries’ citizens the same rights comparable to those
accorded their own citizens by domestic law. The underlying principle is
that foreign nationals should be given the same treatment in each of the
member-countries as that country makes available to its own citizens. It
is not premised upon the idea that the trademark and related laws shall
be given extra-territorial application, but on exactly the converse that
each nation’s law shall have only territorial application. A treaty or
convention is not a mere moral obligation to be enforced but creates a
legally binding obligation on the parties founded on the generally
accepted principles of international law of pacta sunt servanda, which
has been adopted as the law of the law.
— Foreign corporation not doing business has personality to commence
criminal proceedings for violation of RPC
— Mentholatum does not apply! Le Chemise’s exclusive distributor buys
and then sells it shirts for its own account and for its own profit and is
not an agent or conduit of Le Chemise
— Not every sale to an exclusive agent in RP constitutes doing business!
The agent must sell or transact in the foreign corporation’s name and
for the foreign entity’s own account to constitute doing business
— Villanueva: but buying the products to be resold in the RP from
foreign entities involve the foreign entity as direct parties!
What constitutes doing business
— Isolated transaction: set apart from common business; no intention to
engage in a progressive pursuit of the business or corporate purpose
Litton Mills v CA. F: Petitioner Litton Mills, Inc. (Litton) entered into an
agreement with Empire Sales Philippines Corporation (Empire), as local
agent of Gelhaar Uniform Company (Gelhaar), an American corporation,
whereby Litton agreed to supply Gelhaar 7,770 dozens of soccer jerseys.
The agreement stipulated that before it could collect from the bank on
the letter of credit, Litton must present an inspection certificate issued by
Gelhaar’s agent in the Philippines, Empire Sales, that the goods were in
satisfactory condition. Litton then sent four shipments totaling 4,770 dozens
of the soccer jerseys. A fifth shipment of 2,110 dozens of the jerseys, was
inspected by Empire, but Empire refused to issue the required certificate of
inspection. Alleging that Empire’s refusal to issue a certificate was without
valid reason, Litton filed a complaint for specific performance to compel
Empire to issue the inspection certificate covering the 2,110 dozen jerseys
plus damages. The trial court issued the writ and the next day, Empire
issued the inspection certificate, so that the cargo was shipped on time. The
law firm of Sycip, Salazar, Feliciano and Hernandez entered a special
appearance for the purpose of objecting to the jurisdiction of the court over
Gelhaar, and moved to dismiss the case and to quash the summons on the
ground that Gelhaar was a foreign corporation not doing business in the
Philippines, and as such, was beyond the reach of the local courts. It
contended that Litton failed to allege and prove that Gelhaar was doing
business in the Philippines.
H: We sustain petitioner’s contention based on the first ground, namely, that
the trial court acquired jurisdiction over Gelhaar by service of summons
upon its agent as required by of Rule 14, § 14. But, it should be noted, in
order that service may be effected in the manner above stated, said section
also requires that the foreign corporation be one which is doing business in
the Philippines. This is a sine qua non requirement. This fact must first be
established in order that summons can be made and jurisdiction acquired.
The fact of doing business must then, in the first place, be established by
appropriate allegations in the complaint. Hence, a court need not go beyond
the allegations in the complaint to determine whether or not a defendant
foreign corporation is doing business for the purpose of Rule 14, § 14. In the
case at bar, the allegation that Empire, for and in behalf of Gelhaar, ordered
7,770 dozens of soccer jerseys from Litton and for this purpose Gelhaar
caused the opening of an irrevocable letter of credit in favor of Litton is a
sufficient allegation that Gelhaar was doing business in the Philippines.
Gelhaar contends that the contract with Litton was a single, isolated
transaction and that it did not constitute “doing business.” where a single
act or transaction of a foreign corporation is not merely incidental or casual
but is of such character as distinctly to indicate a purpose on the part of the
foreign corporation to do other business in the state, such act will be
considered as constituting doing business. This Court referred to acts which
were in the ordinary course of business of the foreign corporation.
In the case at bar, the trial court was certainly correct in holding that
Gelhaar’s act in purchasing soccer jerseys to be within the ordinary course
of business of the company considering that it was engaged in the
manufacture of uniforms. The acts noted above are of such a character as to
indicate a purpose to do business.
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In accordance with Rule 14, § 14, service upon Gelhaar could be made in
three ways: (1) by serving upon the agent designated in accordance with
law to accept service of summons; (2) if there is no resident agent, by
service on the government official designated by law to that effect; and
(3) by serving on any officer or agent of said corporation within the
Philippines.6 Here, service was made through Gelhaar’s agent, the
Empire Sales Philippines Corp. There was, therefore, a valid service of
summons on Gelhaar, sufficient to confer on the trial court jurisdiction
over the person of Gelhaar.
— Single transaction most not simply be casual or incidental to
constitute doing business… it must be in the ordinary course of the
business of the foreign corporation
Mentholatum v Mangaliman. F: MEntholatum Co Inc, a Kansas
corporation which manfactures “Mentholatum” (a medicament and salve
adapted for the treatment of colds, nasal irritations etc) and its
distributing agent Philam Drug Co filed an action against Mangaliman et
al for infringement of trademark and unfair competition. They allege that
the Mangaliman et al prepared a medicament and salve named
“Mentoliman” which they sold in a container of the same size, color,
shape as “Mentholatum,” and allege damages and diminutions of sales
and loss of goodwill and reputation. TC ruled ifo Mentholatum Co. CA
reverses, holding that the activities of Mentholatum were business
transactions in the Philippines through its agent PhilAm Drug, and that
under the Corpo Law they cannot maintain their suit. Mentholatum claims
that they have not personally sold any of their products in the RP and
that the Philam Drug Co was merely an importer of the products, their
sales not being for the account of Mentholatum but for their own.
Mangaliman countered that PhilAm Drug is the exclusive distributor of
Mentholatum and that because of this arrangement, the acts of the
former became acts of the latter, and thus Mentholatum is engaged in
doing business in the RP and would require a license before it can sue.
I: W/N Mentholatum is doing business in the RP; W/N Mentholatum Inc
could prosecute their action without having secured the license; W/N the
PhilAm Drug co could by itself maintain the suit.
H: There is no general rule regarding what constitutes doing business in
the Phils. The true test is whether the foreign corporation is continuing
the body or substance of the business or enterprise for which it was
organized or whether it has substantially retired from it and turned it over
to another, thus implying a continuity of dealings and arrangements, and
contemplates the performance of acts and exercise of functions normally
incident to the purpose and object of its organization. In this case, as
stipulated in their respective pleadings, whatever transactions of PhilAm
Drug had executed in view of the law, the Mentholatum Co. being a
foreign corporation doing business without the license, may not
prosecute the action. Neither may the PhilAm Drug maintain the action for
the reason that the distinguishing features of the agent being his
representative character and derivative authority, it cannot, to the
advantage of its principal, claim an independent standing in court.
— Sale of products of a foreign entity through a local distributor is
equivalent to doing business; isolated transaction is not doing business
— Mentholatum tests:
(1) substance test: continuing the substance of the business and
purpose for which it was organized
(2) continuity test: continuity of dealings and arrangements, or acts
normally incidental to the purpose and object
Agilent Technologies Singapore v. Integrated Silicon Technology
Phils. F: Petitioner Agilent Technologies Singapore (Pte.), Ltd. (“Agilent”) is a
foreign corporation, which, by its own admission, is not licensed to do
business in the Philippines. Respondent Integrated Silicon Technology
Philippines Corporation (“Integrated Silicon”) is a private domestic
corporation, 100% foreign owned, which is engaged in the business of
manufacturing and assembling electronics components. A 5-year Value
Added Assembly Services Agreement (“VAASA”), was entered into on April 2,
1996 between Integrated Silicon and the Hewlett-Packard Singapore (Pte.)
Ltd., Singapore Components Operation (“HP-Singapore”). Under the terms of
the VAASA, Integrated Silicon was to locally manufacture and assemble fiber
optics for export to HP-Singapore. HP-Singapore, for its part, was to consign
raw materials to Integrated Silicon; transport machinery to the plant of
Integrated Silicon; and pay Integrated Silicon the purchase price of the
finished products. HP-Singapore assigned all its rights and obligations in the
VAASA to Agilent. Integrated Silicon sues Agilent and its officers for specific
performance, alleging that Agilent breached the parties’ oral agreement to
extend the VAASA. Integrated Silicon thus prayed that defendant be ordered
to execute a written extension of the VAASA for a period of five years as
earlier assured and promised. Agilent then filed a separate complaint for
specific performance against Integrated Silicon, Teoh Kang Seng, Teoh Kiang
Gong, Anthony Choo, Joanne Kate M. dela Cruz, Jean Kay M. dela Cruz and
Rolando T. Nacilla, and prayed for the immediate return and delivery to
plaintiff its equipment, machineries and the materials to be used for fiber-
optic components which were left in the plant of Integrated Silicon. TC
denied MTD of Silicon. CA reverses. Integrated Silicon et al argue that since
Agilent is an unlicensed foreign corporation doing business in the
Philippines, it lacks the legal capacity to file suit, assailing various acts of
Agilent, purportedly in the nature of “doing business” in the Philippines.
H: A foreign corporation without a license is not ipso facto incapacitated
from bringing an action in Philippine courts. A license is necessary only if a
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foreign corporation is “transacting” or “doing business” in the country.
The Corporation Code provides:
Sec. 133. Doing business without a license. — No foreign
corporation transacting business in the Philippines without a
license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause
of action recognized under Philippine laws.
The aforementioned provision prevents an unlicensed foreign corporation
“doing business” in the Philippines from accessing our courts. In a
number of cases, however, we have held that an unlicensed foreign
corporation doing business in the Philippines may bring suit in Philippine
courts against a Philippine citizen or entity who had contracted with and
benefited from said corporation. Such a suit is premised on the doctrine
of estoppel. A party is estopped from challenging the personality of a
corporation after having acknowledged the same by entering into a
contract with it. This doctrine of estoppel to deny corporate existence
and capacity applies to foreign as well as domestic corporations. The
application of this principle prevents a person contracting with a foreign
corporation from later taking advantage of its noncompliance with the
statutes chiefly in cases where such person has received the benefits of
the contract.
The principles regarding the right of a foreign corporation to bring suit in
Philippine courts may thus be condensed in four statements:
(1) if a foreign corporation does business in the Philippines without a
license, it cannot sue before the Philippine courts;
(2) if a foreign corporation is not doing business in the Philippines, it
needs no license to sue before Philippine courts on an isolated
transaction or on a cause of action entirely independent of any business
transaction;
(3) if a foreign corporation does business in the Philippines without a
license, a Philippine citizen or entity which has contracted with said
corporation may be estopped from challenging the foreign corporation’s
corporate personality in a suit brought before Philippine courts; and
(4) if a foreign corporation does business in the Philippines with the
required license, it can sue before Philippine courts on any transaction.
In Mentholatum, the Court discoursed on the two general tests to
determine whether or not a foreign corporation can be considered as
“doing business” in the Philippines. The first of these is the substance
test, thus: The true test [for doing business], however, seems to be whether
the foreign corporation is continuing the body of the business or enterprise
for which it was organized or whether it has substantially retired from it and
turned it over to another.
The second test is the continuity test, expressed thus: The term [doing
business] implies a continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of acts or works or the
exercise of some of the functions normally incident to, and in the
progressive prosecution of, the purpose and object of its organization.
Although each case must be judged in light of its attendant circumstances,
jurisprudence has evolved several guiding principles for the application of
these tests. For instance, considering that it transacted with its Philippine
counterpart for seven years, engaging in futures contracts, this Court
concluded that the foreign corporation in Merrill Lynch Futures, Inc. v. Court
of Appeals and Spouses Lara, was doing business in the Philippines. In Top-
Weld Manufacturing v. ECED, IRTI, et al. both involved the License and
Technical Agreement and Distributor Agreement of foreign corporations with
their respective local counterparts that were the primary bases for the
Court’s ruling that the foreign corporations were doing business in the
Philippines. In particular, the Court cited the highly restrictive nature of
certain provisions in the agreements involved, such that… the Philippine
entity is reduced to a mere extension or instrument of the foreign
corporation.
The case law definition has evolved into a statutory definition, having been
adopted with some qualifications in various pieces of legislation. The
Foreign Investments Act of 1991 (the “FIA”; Republic Act No. 7042, as
amended), Sec 3 (d) defines “doing business” as those which “include
soliciting orders, service contracts, opening offices, whether called “liaison”
offices or branches; appointing representatives or distributors domiciled in
the Philippines or who in any calendar year stay in the country for a period
or periods totaling one hundred eighty (180) days or more; participating in
the management, supervision or control of any domestic business, firm,
entity, or corporation in the Philippines; and any other act or acts that imply
a continuity of commercial dealings or arrangements, and contemplate to
that extent the performance of acts or works, or the exercise of some of the
functions normally incident to, and in the progressive prosecution of,
commercial gain or of the purpose and object of the business organization.”
An analysis of the relevant case law, in conjunction with Section 1 of the
Implementing Rules and Regulations of the FIA (as amended by Republic Act
No. 8179), would demonstrate that the acts enumerated in the VAASA do
not constitute “doing business” in the Philippines.
The IRR of the FIA (as amended by Republic Act No. 8179) provides that the
following shall not be deemed “doing business”:
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a. Mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business,
and/or the exercise of rights as such investor;
b. Having a nominee director or officer to represent its
interest in such corporation;
c. Appointing a representative or distributor domiciled in the
Philippines which transacts business in the representative’s
or distributor’s own name and account;
d. The publication of a general advertisement through any
print or broadcast media;
e. Maintaining a stock of goods in the Philippines solely for
the purpose of having the same processed by another
entity in the Philippines;
f. Consignment by a foreign entity of equipment with a local
company to be used in the processing of products for
export;
g. Collecting information in the Philippines; and
h. Performing services auxiliary to an existing isolated
contract of sale which are not on a continuing basis, such
as installing in the Philippines machinery it has
manufactured or exported to the Philippines, servicing the
same, training domestic workers to operate it, and similar
incidental services.
By and large, to constitute “doing business”, the activity to be
undertaken in the Philippines is one that is for profit-making. By the clear
terms of the VAASA, Agilent’s activities in the Philippines were confined
to (1) maintaining a stock of goods in the Philippines solely for the
purpose of having the same processed by Integrated Silicon; and (2)
consignment of equipment with Integrated Silicon to be used in the
processing of products for export. As such, we hold that, based on the
evidence presented thus far, Agilent cannot be deemed to be “doing
business” in the Philippines. Respondents’ contention that Agilent lacks
the legal capacity to file suit is therefore devoid of merit. As a foreign
corporation not doing business in the Philippines, it needed no license
before it can sue before our courts.
— Jqck: Agilent sums up everything; it’s the controlling doctrine now
Merrill Lynch Futures v CA. F: Merrill Lynch Futures, Inc. a non-resident
foreign corporation not doing business in the Philippines, sued the
Spouses Pedro M. Lara and Elisa G. Lara for the recovery of a debt and
interest thereon. Merrill Lynch is a "futures commission merchant" duly
licensed to act as such in the futures markets and exchanges in the
United States, and essentially functioning as a broker… (executing)
orders to buy and sell futures contracts received from its customers on U.S.
futures exchanges.
It also defined a "futures contract" as a "contractual commitment to buy and
sell a standardized quantity of a particular item at a specified future
settlement date and at a price agreed upon, with the purchase or sale being
executed on a regulated futures exchange." It entered into a Futures
Customer Agreement with the defendant spouses, in virtue of which it
agreed to act as the latter's broker for the purchase and sale of futures
contracts in the U.S. and that pursuant to the contract, orders to buy and
sell futures contracts were transmitted to ML FUTURES by the Lara Spouses
"through the facilities of Merrill Lynch Philippines, Inc., a Philippine
corporation and a company servicing plaintiffs customers. Later, the Laras
would reaffirm their lack of awareness that Merrill Lynch Philippines, Inc.
(formerly registered as Merrill Lynch, Pierce, Fenner & Smith Philippines,
Inc.) did not have a license, claiming that they learned of this only from
inquiries with the Securities and Exchange Commission which elicited the
information that it had denied said corporation's application to operate as a
commodity futures trading advisor. Lara Spouses actively traded in futures
contracts, including "stock index futures" for four years or so, i.e., from 1983
to October, 1987. A loss amounting to US$160,749.69 was incurred in
respect of three (3) transactions involving "index futures," and after setting
this off against an amount of US$75,913.42 then owing by ML FUTURES to
the Lara Spouses, said spouses became indebted to ML FUTURES for the
ensuing balance of US$84,836.27. Lara Spouses however refused to pay this
balance, "alleging that the transactions were null and void because Merrill
Lynch Philippines, Inc., the Philippine company servicing accounts of
plaintiff… had no license to operate as a 'commodity and/or financial futures
broker. Lara files a MTD, and TC sustains the motion. CA affirms, holding that
the Trial Court had seen "through the charade in the representation of MLPI
and the plaintiff that MLPI is only a trading advisor and in fact it is a conduit
in the plaintiff's business transactions in the Philippines,” citing the ruling in
Mentholatum v Mangaliman.
I: W/n (a) ML FUTURES is prohibited from suing in Philippine Courts because
doing business in the country without a license, and that (b) it is not a real
party in interest since the Lara Spouses had not been doing business with it,
but with another corporation, Merrill Lynch, Pierce, Fenner & Smith, Inc.
H: The ground that the plaintiff has no legal capacity to sue — may be
understood in two senses: one, that the plaintiff is prohibited or otherwise
incapacitated by law to institute suit in Philippine Courts; or two, although
not otherwise incapacitated in the sense just stated, that it is not a real
party in interest. Now, the Lara Spouses contend that ML Futures has no
capacity to sue them because the transactions subject of the complaint were
had by them, not with the plaintiff ML FUTURES, but with Merrill Lynch Pierce
Fenner & Smith, Inc.
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The facts on record adequately establish that ML FUTURES, operating in
the United States, had indeed done business with the Lara Spouses in the
Philippines over several years, had done so at all times through Merrill
Lynch Philippines, Inc. (MLPI), a corporation organized in this country, and
had executed all these transactions without ML FUTURES being licensed
to so transact business here, and without MLPI being authorized to
operate as a commodity futures trading advisor. The Laras did transact
business with ML FUTURES through its agent corporation organized in the
Philippines, it being unnecessary to determine whether this domestic firm
was MLPI (Merrill Lynch Philippines, Inc.) or Merrill Lynch Pierce Fenner &
Smith (MLPI's alleged predecessor). The fact is that ML FUTURES did deal
with futures contracts in exchanges in the United States in behalf and for
the account of the Lara Spouses, and that on several occasions the latter
received account documents and money in connection with those
transactions.
I: W/N ML FUTURES may sue in Philippine Courts to establish and enforce
its rights against said spouses, in light of the undeniable fact that it had
transacted business in this country without being licensed to do so. W/N
the Lara Spouses are now estopped to impugn ML FUTURES' capacity to
sue them in the courts of the forum.
H: The rule is that a party is estopped to challenge the personality of a
corporation after having acknowledged the same by entering into a
contract with it. And the "doctrine of estoppel” to deny corporate
existence applies to foreign as well as to domestic corporations; "one who
has dealt with a corporation of foreign origin as a corporate entity is
estopped to deny its corporate existence and capacity." The principle "will
be applied to prevent a person contracting with a foreign corporation
from later taking advantage of its noncompliance with the statutes,
chiefly in cases where such person has received the benefits of the
contract where such person has acted as agent for the corporation and
has violated his fiduciary obligations as such, and where the statute does
not provide that the contract shall be void, but merely fixes a special
penalty for violation of the statute… "
There would seem to be no question that the Laras received benefits
generated by their business relations with ML FUTURES. Those business
relations, according to the Laras themselves, spanned a period of seven
(7) years; and they evidently found those relations to be of such
profitability as warranted their maintaining them for that not insignificant
period of time; otherwise, it is reasonably certain that they would have
terminated their dealings with ML FUTURES much, much earlier. In fact,
even as regards their last transaction, in which the Laras allegedly
suffered a loss in the sum of US$160,749.69, the Laras nonetheless still
received some monetary advantage, for ML FUTURES credited them with the
amount of US$75,913.42 then due to them, thus reducing their debt to
US$84,836.27. Given these facts, and assuming that the Lara Spouses were
aware from the outset that ML FUTURES had no license to do business in this
country and MLPI, no authority to act as broker for it, it would appear quite
inequitable for the Laras to evade payment of an otherwise legitimate
indebtedness due and owing to ML FUTURES upon the plea that it should not
have done business in this country in the first place, or that its agent in this
country, MLPI, had no license either to operate as a "commodity and/or
financial futures broker."
— Estoppel doctrine: if local parties knew that the foreign entity does not
have a license, yet it is doing business, and they still transacted with
them—estopped from invoking lack of license!
— Villanueva: Merrill Lynch lacks an element of estoppel—
action/representation by the local which induces the foreign to believe
that he would be entitled to relief… the simple act of entering into a
contract with a foreign entity does not of itself give rise to estoppel.
Topweld Manufacturing v ECED. F: TopWeld, a domestic corporation
engaged in manufacturing and selling welding supplies and equipment,
entered into separate contracts with 2 different foreign entities. The first
contract is a License and Technical Assistance Agreement with the IRTI, a
Swiss corporation, which constituted TopWeld a licensee of IRTI to
manufacture welding products under certain specifications with raw
materials to be purchased by TopWeld from suppliers designated by IRTI. The
second contract is a Distributor Agreement with the ECED SA, a Panamanian
corporation, which designated TopWeld as ECED’s distributor in the RP of its
welding products and equipment. Upon learning that the two foreign
corporations were negotiating with another group to replace TopWeld, the
latter sued IRTI, ECED and an American corporation, EUTECTIC, and also
Victor Gaerlan, the alleged representative of the three corporations. TopWeld
sought to restrain the corporations from negotiating with third parties and
from terminating its contract. TC grants petition and issues TRO. IRTI and
ECED writes TopWeld to inform it of their intent to sever their agreement.
TopWeld amended its complaint to ask the court to compel the ECED to
deliver items covered by the agreement and to prohibit them from importing
into the RP any EUTECTIC products. TC granted the amended prayer. CA
reverses, holding that IRTI and ECED, by entering into licensing and
distributing agreements with TopWeld, were doing business in the RP and
thus should have required a certificate from the BOI. It held that having not
obtained the requisite certificate, the provisions of RA 5455 prohibiting alien
firms from terminating their franchise or licensing agreements with domestic
firms without payment of compensation and reimbursement of expenses
cannot be applied to them. They are not bound by the requirement on
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termination and thus TopWeld cannot invoke the same. To impose a
requirement would perpetuate or condone an unlawful business
operation. The CA finally held that TopWeld ought to know whether or not
IRTI and ECED were properly authorized to engage in business in the RP.
TopWeld appeals to SC.
I: W/n IRTI and ECED can be considered as doing business and thus
subject to the requirements of RA 5455.
H: IRTI and ECED are foreign corporations not licensed to do business in
the Phils. SC reverted to the lack of a general rule as to what exactly
constitutes doing or engaging in business in the RP, and acknowledged
that each case must be judged in light of its peculiar circumstances. Acts
of corporations should be distinguished from single or isolate business
transactions or occasional, incidental, or casual transactions. Where a
single act or transaction is not merely incidental or casual but indicates
the foreign corporation’s intention to do other business in the Phils, said
single act constitutes doing or engaging in business in the RP.
The SC concurs with the CA that the IRTI and ECED were doing business
in the RP. When they entered into the dispute contracts with TopWeld,
they were carrying out the purposes for which they were created—to
manufacture and market welding products and equipment. The terms and
conditions of the contracts indicate that they established within the RP, a
continuous business, and not merely one of a temporary character. This is
buttressed by the admission that they were negotiating with another
domestic company. Their acts enable them to enter into the mainstream
of our economic life in competition with local business interests, bringing
them under the provisions of RA 5455. IRTI and ECED contends
exemption from RA 5455 because TopWeld maintained an independent
status during the existence of the contracts. But a perusal of the
agreements shows that they are highly restrictive, and in assuming
TopWeld to have an independent status, in essence it merely extends to
the Islands the business of IRTI and ECED.
As between the parties, RA 5455 does not declare void or invalid the
contracts entered without the license being secured. What is created is
an illegal situation between the parties having entered into agreements
without the license or certificate. In this case, TopWeld had actual
knowledge of the applicability of RA 5455 at the time of execution of the
contract. It was incumbent upon TopWeld to know whether or not IRTI and
ECED were properly authorized to engage in the RP. The very purpose of
the law was circumvented when they etered into the licensing and
distributorship agreements, and the parties being equally guilty and are
in pari delicto, it follows that TopWeld is not entitled to the relief prayed
for.
— TopWeld: “pari delicto rule”—local company knew that the law it alleges
to have been violated by the foreign corporation is in force at the time of
the questioned contracts were consummated; while foreign corporation
is doing business without a license!
— The contracts cannot be voided!
— Highly restrictive agreements which has the effect of reducing the local
corporation to mere conduits or extensions of the foreign corporation
Antam Consolidated v CA. F: Stokely (parent) and Capital City (subsidiary)
companies are foreign corporations not engaged and not licensed to do
business in the RP. Capital City and Comphil acting through broker Rothschild
entered into a contract wherein Comphil undertook to sell and deliver and
Capital City agreed to buy 500 long tons of crude coconut oil. Comphil failed
to deliver the coconut oil so that Capital decided to cover its oil needs in the
open market, resulting in a loss of $103,600. The parties entered into a
second contract—designated as a “wash out” of the first contract—wherein
Comphil undertook to buy back the 500 long tons of coconut oil at a higher
price, the difference in price offsetting the loss sustained in the first
contract. Comphil failed to pay. A third contract was entered into, wherein
Comphil was to sell the same quantity of coconut oil at a discounted price
from the market value thereof, again offsetting the loss of $103,600
sustained by Capital City. Again Comphil failed to deliver, and despite
repeated demands Comphil refused to settle its obligations to Capital City
under the agreements. The Tambuntings, former directors of Comphil, left
the company and were replaced by 5 employees of their pawnshop
business, and caused the name of Comphil to be changed to Banahaw
Milling. The new directors also authorized Tambunting to sell the oil mill of
Comphil/Banahaw, which is the only substantial asset of Banahaw and would
thus leave it with no assets to satisfy claims of creditors. Unicom also took
over the assets and capital stock of Banahaw. Capital City alleged that all
petitioners evaded their obligation thereto through the devious scheme of
using Tambunting employees to replace the Tambuntings in the
management of Banahaw and disposing part of the assets and entire
interests in Comphil/Banahaw to Unicom. TC ordered the writ of attachment.
Petitioners Antam et al file MTD on the ground that petitioners are foreign
corporations no licensed to do business in the RP and has no personality to
maintain the instant suit. TC denies MTD, and Antam et al appeals. Antam
claims Stokely and Capital city are doing business in the RP, because it
entered into three transactions/contracts with them either as seller or buyer,
and which are in the pursuit of the purpose and object for which they are
organized. They are thus required to obtain a license first before maintaining
any legal action against them.
business.” The records show that the only reason why the second and
third contracts were entered into was to recover the loss sustained from
the failure of Antam et al to deliver the crude coconut oil under the first
contract. Instead of outright demand, the foreign company even tried to
push through with the transaction to recover the amount lost. And again
petitioners failed to make good. It can be deduced therefore, that in
reality there was only one agreement—to deliver 500 long tons of
coconut oil—and the 3 different transactions were entered into in an
effort to fulfill the basic agreement and in no way indicate an intent to
engage in a continuity of transactions with the petitioners which would
categorize it as a foreign corporation doing business in the RP.
It is a common ploy of defaulting companies sued by unlicensed foreign
companies not engaged in business in the RP to invoke lack of capacity to
sue. The doctrine of lack of capacity to sue based on failure to acquire a
local license is based on considerations of sound public policy. It was
never intended to favor domestic corporations who enter into solitary
obligations simply because the latter are not licensed to do business in
the country.
— Antam: “auxiliary rule”—performance of services auxiliary to an
existing contract is not doing business!
How courts acquire jurisdiction over foreign corporations
Laws governing licensed foreign corporations
Merger of licensed foreign corporation
Withdrawal of foreign corporation
Revocation and suspension of license
Existing Licensed Foreign Corporations

H: the transactions are not a series of commercial dealings which signify an

intent on the part of Stokely and Capital City to do business in the RP, but
constitute an isolated one which does not fall under the category of “doing

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